An Interview with Ernesto Perez-Carrillo

Ernesto Perez-Carrillo was quietly making cigars in Miami in 1992
at his El Credito Cigar Co. Local cigar lovers and a small cult of
smokers nationwide coveted his La Gloria Cubana brand as well as three
other brands he made at the small factory in Miami's Little Havana
district. His production of fewer than one million cigars a year
allowed him to keep his loyal customers supplied, and permitted him
the luxury of keeping inventories of tobacco. He could age his tobacco
as well as his cigars, and bring them to market when they were
ready. Then, a sterling rating in Cigar Aficionado for his La Gloria
Cubana Wavell and a subsequent story about his family-style operation
in the Spring 1993 issue of Cigar Aficionado changed Carrillo's life
forever.

Within months, orders for La Gloria Cubana outstripped Carrillo's
ability to make them. He admittedly lost track of just how many back
orders he had, as the stories among his loyal followers became
legendary; some waited up to six months for an order to be
filled. Many people, instead of giving up, made a pilgrimage to the El
Credito factory on S.W. 8th Street.

Finally, the pressure in Miami became too great, and with the
advent of new factories in the city, Carrillo knew that competition
for rollers and skilled laborers would raise the already high cost of
making cigars in America. He began looking for property outside the
country, settling on a location in the Dominican Republic. In a
wide-ranging interview last November with Marvin R. Shanken, the
editor and publisher of Cigar Aficionado, Carrillo discussed the
trials and tribulations of the past four years, and his incredible
success.

Cigar Aficionado: When did you open your factory in the
Dominican Republic?

Carrillo: We closed the deal in November 1995, and we began
making cigars as of April 8, 1996. By coincidence, that is the same
month and day I took over the factory in Miami in 1980. We've been
rolling cigars there now for about six months.

CA: What motivated you to open a new facility in the
Dominican Republic after you've had a very successful small business
in Miami? Why did you decide to expand your business?

Carrillo: I'd been coming to the Dominican Republic to buy
tobacco. About four or five years ago, I went to look at a site there
and thought to myself, "If I ever was going to open up in the
Dominican Republic, it would be somewhere away from the rest of the
free zones," where, as you know, most of the cigar factories are. I
went down in 1995 to buy tobacco, and the day before I was leaving I
went to see Mr. Federico Dominguez, who's the owner of [an industrial
park in the Pisano free trade zone], and he said, "Let me show you
around the park." So, we looked around, and I saw this place. I fell
in love with it right away.

CA: What was going on in your business that led to the
decision to expand in the first place?

Carrillo: There was no room for growth in Miami. Miami is a
very limited market nowadays, especially with all the new factories
opening up. I decided if I wanted to grow, and reach more consumers,
spread my cigars around more, I would have to do it somewhere else.

CA: In 1996, how many cigars in total were you able to
produce in Miami?

Carrillo: In Miami, we produced about 1.2 million.

CA: How many of those are La Gloria Cubana?

Carrillo: La Gloria Cubana was about 80 percent of the
production.

CA: Are you at a point now where you can't produce more
than 1.2 million in Miami?

Carrillo: Right.

CA: Are you at your total capacity in Miami?

Carrillo: I'm at it now.

CA: In your factory in the Dominican Republic, how many
different brands are you producing?

CA: So in 1997 you'll produce 1.2 million in Miami and how
many in the Dominican Republic?

Carrillo: In the D.R., about six million.

CA: You will go to six million?

Carrillo: That's what we're shooting for. The only thing
that might hold us back is lack of tobacco, which is a big problem
now.

CA: I think people are interested to know, first of all, is
there a designation on the cigar band that says whether it's from
Miami or from the Dominican Republic?

Carrillo: Yes. It will be on the cigar box or bundle. We
have to mark that on the bottom.

CA: But not on the band.

Carrillo: No.

CA: Is the blend exactly the same?

Carrillo: The blend is the same blend that we use in the
Miami factory: Dominican and Nicaraguan tobacco.

CA: Let's talk about the blend of La Gloria Cubana, just to
make it clear. The wrapper is from where?

Carrillo: Ecuador.

CA: The binder?

Carrillo: It's from Nicaragua.

CA: And the filler?

Carrillo: It is from the Dominican Republic and Nicaragua.

CA: What's the mix between the two?

Carrillo: We use about 75 percent Dominican and about 25
percent Nicaraguan.

CA: Is there any particular leaf that you specialize in, in
the blend that you make?

Carrillo: We use piloto Cubano, Cuban-seed tobacco from
Nicaragua and the Dominican Republic. The Dominican tobacco comes from
Villa Gonzales, La Canela and Jacagua. In Nicaragua, we use tobacco
from Estelí and some Jalapa.

CA: How many rollers do you have in Miami and how many
rollers do you have today in the Dominican Republic?

Carrillo: In Miami, we have 30 rollers and in the Dominican
Republic, we have 228.

CA: And do you plan to expand the number of rollers in
either location?

Carrillo: In the Dominican Republic, we do plan to expand
our rollers to about 300. In Miami, we would like to expand to about
40.

CA: Are these basically new people who have never rolled
before that you are training, or are these experienced people that
have worked at other factories?

Carrillo: We have some experienced rollers, but most have
been people trained by us. We started that back in November 1995 and
we trained over 180 people in our shop.

CA: Are there more men or women rollers?

Carrillo: It's half and half.

CA: Do you find that a woman roller is more gifted than a
man roller, or vice versa? Or are they about the same?

Carrillo: In the Dominican Republic I find that the men are
more gifted, especially in the bunching of the cigars. The women,
however, are equal, or in some cases, better in the rolling.

CA: Do they take an equal amount of time to train, whether
it's a man or a woman?

Carrillo: It's the same amount of time.

CA: How long does it take to bring someone off the street
and sit him down at a training table with an instructor before he's
able to roll cigars with the La Gloria Cubana brand name?

Carrillo: First of all, we send them to a program in the
Dominican Republic run by Infotec, a government agency that provides
job training; we support it with a payroll tax. They receive 220 hours
of instruction. They just show them the basics. When they come work
for us, after about two or three months, we put them up in the tobacco
room to grade tobacco and to work all over the plant. We don't just
sit them down right away. After about usually three weeks, we sit them
at a table and they start making cigars. They might do 10, 20 cigars,
25, 50 cigars a day.

CA: Do those cigars then go into bundles?

Carrillo: No, because we use different tobaccos for that
type of cigar. We sell them as seconds. "Apprentices' Cigars" we call
them.

CA: How long does it take before they make a La Gloria?

Carrillo: I'd say about four months.

CA: In Miami, the newcomers are usually people that were in
Cuba. Is that right?

Carrillo: Right.

CA: Therefore, you don't need a training program in Miami?

Carrillo: No, we don't have a training program in Miami.

CA: Have the 30 rollers spent their life rolling cigars?

Carrillo: Yes. With the exception of four, who have
recently learned in the factory, most have worked in Cuba, in the
well-known factories of Havana and Pinar del Rio.

CA: I would imagine, then, the demographics are quite
different in that they're young people in the Dominican Republic and,
generally speaking, older men or women in Miami.

Carrillo: In Miami, they average about 40 years old. I
don't think you find too many of the older generation making cigars
today as was the case when my father was making cigars in 1968.

CA: With the explosion of cigar factories in Miami, have
you lost many of your rollers to competitors in the last several
years?

Carrillo: We lost a lot of people. At one time, we had
about 40 rollers, then we lost about 15 to competitors. Because of the
new popularity of cigars, everyone is opening up a cigar factory. The
first thing they do is try to look for experienced cigar rollers. And
I was one of the most visible ones there, so that's where they went.

CA: I assume that was a problem.

Carrillo: It was a problem until I opened up in the
Dominican Republic. It was one of the main reasons I opened the
factory there. I saw this coming.

CA: How much time are you spending in the Dominican
Republic versus Miami?

Carrillo: I spend about 20 days out of the month.

CA: In the Dominican Republic?

Carrillo: Right.

CA: What was it like to open a factory in the Dominican
Republic? Did you have a lot of problems in getting started or did it
go smoothly?

Carrillo: Quite frankly, it was lot smoother than I thought
it would be. And a great part of the reason was that I have a
management team working with me in the Dominican Republic who I guess,
you know, are great kids--Felix Rodriguez, Olmedo Pichardo and Noemi
Perez. They have helped me through the whole process, got me the
people to work in the factory. So it wasn't as hard as it would have
been if I hadn't had these people.

CA: How about the companies that have been in the Dominican
Republic a long time. Did they welcome you as a new competitor, or
didn't they want to help?

Carrillo: No, as soon as I came in, I got their
assistance. And, like I said, I found no problem in getting whatever
help I needed from the bigger companies there.

CA: Any in particular?

Carrillo: The Fuentes. They helped me with molds, presses
and boxes to make my first shipments. They were the ones that were
really in the forefront to say, 'Whatever you need.' They still are.

CA: With everyone short of rollers, and everyone having big
training programs, isn't there the potential for problems in hiring
rollers away from other factories?

Carrillo: It has created problems. I couldn't be sure if a
job applicant had been working in other factories, or whether they
left a year ago, six months ago. But as soon as we found out that
these people were not telling the truth, then we just let them
go. That's one thing down there in the Dominican Republic; you know
everybody respects each other's work. If a worker comes to me from the
Fuentes or General [Cigar Co.] or MATASA or wherever, we call them and
make sure it's OK to give them work.

CA: If you make 1.2 million cigars in Miami and 6 million
in the Dominican Republic, that's 7.2 million cigars, with the
majority La Gloria Cubana. Didn't you used to sell a lot of your
cigars out of your store?

Carrillo: We still do.

CA: But you also ship to a small group of selected
retailers around the country. Doesn't the dynamic change when you
increase your production sixfold? In many ways, you've gone from a
mom-and-pop operation to real commercial volume. How are you going to
deal with that? How are you going to handle the increase in shipments?

Carrillo: It has changed dramatically. It's not easy. As a
matter of fact, I'm going to start looking for a building just to
handle the cigars from the Dominican Republic. And our shop on 8th
Street has gone to a point where we can't handle all the volume.

CA: From that store, do you only sell the cigars made in
Miami or do you also sell your Dominican cigars?

Carrillo: No. Right now from the Miami store, we only sell
the cigars made in Miami. And that's the way we will keep it.

CA: The cigars you make in the Dominican Republic you're
going to ship across the United States?

Carrillo: Correct.

CA: Will the cigars stop in Miami or will you sell directly
to retailers all over the country?

Carrillo: They'll be distributed through Miami for the time
being.

CA: So you don't have a warehouse there.

Carrillo: Not yet, but we're looking for a warehouse near
the 8th Street location.

CA: Before you began production in the Dominican Republic,
how many retailers in the United States carried La Gloria Cubana?

Carrillo: We had about 178.

CA: Most complained they got maybe 5 percent of what they
needed. Are you going to add retailers?

Carrillo: For the time being, we are going to stick with
those retail customers that want more cigars. They've been patient
enough to wait all this time and those are the ones for whom we're
going to try to maintain supplies for the time being.

CA: So you're not going to expand and increase the number
of retailers?

Carrillo: We're not going to increase unless we have the
excess capacity to increase.

CA: Are you saying that every city now has at least one
retailer that carries La Gloria Cubana?

Carrillo: No, there are a lot of cities, especially in the
Midwest and on the West Coast, that don't have them. There are a lot
of places that still don't carry La Gloria Cubana.

CA: How does my reader, who wants your cigar, get your
cigar?

Carrillo: That's a good question and frankly, I know we
have to expand and spread the cigars to different cities. But I want
to give these people who have been waiting for me all this time, some
reward.

CA: If a consumer calls your office on the phone, will you
send them the list of stores around the country that carry your
cigars?

Carrillo: If they call, what we'll do is tell them they can
get it at such and such a store. The problem that we had is when the
consumer goes to the store, he finds that the retailer is out. When a
retailer gets a batch of La Gloria Cubana, they sell out within two to
three days. It's a real problem for the retailer and myself because
you usually end up with an upset customer.

CA: As a curiosity, when you ship to a retailer, how many
boxes are in an order?

Carrillo: We average, depending on the size, from 40 to 50
boxes. But it can range from 30 boxes to about 120.

CA: And how many times a year might they get that?

Carrillo: About four times a year.

CA: So even though the retailer is in St. Louis or Memphis,
he's going to get his shipments?

Carrillo: Yeah, it's a steady thing. We rotate. It's
something they're going to get whether they call or not.

CA: People found two things attractive about La Gloria
Cubanas: it is a well-made, rich-tasting cigar and it was reasonably
priced. Today, costs have gone up. The growers want more, you've built
a new factory, you're doing a lot more. Have you adjusted your prices,
for instance on a Wavell?

Carrillo: Three years ago, I think it was $1.95. If I'm not
mistaken, now it's about $2.85.

CA: $2.85. Are you going to continue to increase prices?

Carrillo: I don't know, I try to keep the prices as low as
possible. What I try to do is cut costs on my end. Of course, if it's
a question of my costs going up tremendously, that's the only time
I'll raise cigar prices. I have this philosophy that I make a good
cigar, a quality cigar, at a price that most people can afford.

CA: What happens if hotels or restaurants, which are
getting more and more into offering cigars, want to sell your cigar?
Do you sell to hotels and restaurants?

Carrillo: We haven't. We sell mostly to retailers and to
wholesalers.

CA: I've heard stories where a retailer, who is not one of
your 178, will go into a store, buy five boxes at--I'm making up the
number, but let's say, $80 for the box. Takes it to his store, marks
it up to $150 or whatever, and sells it. So it's like a double markup
because customers want your cigar.

Carrillo: That's one of the biggest problems I have. I
mean, I have had a lot of problems during my years making cigars. But
I find this to be one of the biggest problems, where you have people
charging excessive amounts, especially when I am trying to sell the
cigar as low as I can at a decent price. And we see that people are
charging 12, 15, 20, 22 dollars for, let's say, a torpedo. It makes me
sick. I don't think it's fair for the consumer, and I don't think
consumers should pay this price unless it's priced that way
originally.

CA: Is there any way to characterize the retailers who do
get your cigars? Are they the old-line, top retailers?

Carrillo: Yes, places like Mike's in Miami, Holt's in
Philadelphia, Arnold's in New York, Jack Schwartz in Chicago. They
were the ones that started with us, and they're loyal to us and we're
loyal to them.

CA: Your number two brand after La Gloria is El Rico
Habano. Is that less expensive?

Carrillo: Yes.

CA: How much less? Ten, 20 percent?

Carrillo: About 10 percent.

CA: Are you going to increase production of that brand?

Carrillo: We're going to be increasing the production,
because that cigar is selling very well. That's an old Nicaraguan
blend of tobacco, except for the wrapper, which is from Ecuador. It's
full of body. I think that once people start smoking a cigar--let's
say they're starting with a mild cigar--they want to move to something
a little stronger, like El Rico, which would be a full-bodied
cigar. And that's starting to sell very well. We haven't exposed it to
the public so much because we've been tied up with La Gloria.

CA: What other brands do you make?

Carrillo: We make La Hoja Selecta, which is a mild
cigar. Then a couple of months ago we started making Dos Gonzales,
which is another brand that was very popular. It was one of the first
brands made in the Dominican Republic.

CA: And all of these are distributed wherever you sell La
Gloria? You don't have any exclusivity with anyone in terms of these
brands?

CA: Are those two new brands pretty much the same kinds of
blends, the same kind of tobacco?

Carrillo: No. La Hoja Selecta is a blend of Dominican and
Nicaraguan. It's a milder tobacco that we use. Dos Gonzales is an
all-Dominican cigar.

CA: Including the wrapper?

Carrillo: No, the wrapper is Connecticut shade. We use
Connecticut shade wrapper for both La Hoja Selecta and Dos Gonzales.

CA: You use Ecuadoran wrapper on La Gloria Cubana and El
Rico Habano. Is that because you've been working with it a long time?

Carrillo: That's it. The Ecuadoran wrapper we've been using
since '68, since my father started the company in Miami. When we came
out with the other two brands, La Hoja Selecta and Dos Gonzales, I
wanted to use something else for people who like a Connecticut shade
wrapper. It's a very good wrapper and a lot of people like that. For
El Rico and La Gloria, we've been using the Ecuadoran wrapper from the
beginning.

CA: If you're going to do 7 million-plus cigars in 1997, do
you have a five-year plan? At what point do you reach a maximum
production level, or is it a continuous growing process?

Carrillo: I said 7 million, because that's the amount of
tobacco I am going to get this coming year. I'm sure that we could
double that if we had the tobacco. But the situation being as it is
now with tobacco that's hard to get, we really don't know how much is
going to be available. For that amount of cigars, I know I'm fine.

CA: Given the pressure on shipping, from the time that you
roll a cigar until you ship it, how much aging does it get?

Carrillo: In the Dominican Republic we give the cigars a
minimum of 14 to 21 days before we ship.

CA: In Miami?

Carrillo: No. No.

CA: By comparison. How much?

Carrillo: In Miami, it is like two to three days. In Miami
we don't really have the room to keep the cigars.

CA: What about aging the tobacco before you roll it?

Carrillo: The tobacco that we're going to start using in
1997 is from 1995 because we've been building up inventory for the
past year.

CA: How many months of aging will it have?

Carrillo: It will have a minimum of about 12 months.

CA: Are you comfortable with those time frames--the 14 to
21 days after the cigar is made and the 12 months of tobacco aging?
Would you like to see it aged longer?

Carrillo: If you can keep it longer, it might improve
it. It takes about 15 days after a cigar is made to lose its excess
humidity while keeping the humidity that it needs. I feel that after
14 to 21 days, the cigars are in good shape to be smoked. We test
constantly to see if that is the right amount of time.

CA: I'm sure you are aware that more and more companies are
going public as a way of raising equity capital to expand their
businesses. I also guess that investment bankers knock on your door
all the time. Do you plan to stay private or do you at some point plan
to go public?

Carrillo: Right now, I intend to stay private and the main
reason is because I like what I do. I like making my own decisions and
not having to answer to anybody. I like being independent and this is
one of the main reasons. You know, money, we all need money, but money
is not something that really motivates me to work. I need to have this
independence where I can do whatever I want to do and not worry about
letting everybody know.

CA: Are any members of your family in the business?

Carrillo: My wife, Elena.

CA: And what does she do?

Carrillo: She helps run the Miami operation and the
distribution.

CA: You also have a daughter, right?

Carrillo: Lissette, who is 23, goes to law school at
Columbia University in New York.

CA: Have you discussed the possibility of her someday
joining you?

Carrillo: We discussed it before she left for school. I
think now she's changed her mind about that. She really likes law,
especially tax law. So I think that's probably what she'll pursue.

CA: Do you have other children?

Carrillo: I have a son, Ernesto, who's 15.

CA: Ernesto. Does he ever work in the factories?

Carrillo: He helps out during the summer. Shipping and that
type of stuff.

CA: Your father was in the business. How far back does your
family go in the tobacco business?

Carrillo: Since 1907.

CA: Was that your grandfather's generation?

Carrillo: My grandfather and his brother started making
cigars on the sidewalks. They had a little cigar table and they made
their cigars and they sold them for a penny.

CA: Where was this?

Carrillo: In Cuba. Havana, Cuba.

CA: So they were in the business and they handed it down to
your father?

Carrillo: When my father started out, he worked for Cuban
Land Leaf Tobacco Co., which was an American company that would buy
Cuban tobacco and resell it in the U.S. or wherever.

CA: What year was that?

Carrillo: That was about 1928.

CA: So he worked for an American company, but in Cuba.

Carrillo: He used to be the tobacco buyer.

CA: Tell me a little bit about his life.

Carrillo: He was a man with a lot of guts. There's a story
about him, one time before the [Second World] war; there was an excess
of tobacco and nobody, none of the big companies, wanted to buy any
tobacco.

CA: They didn't need it?

Carrillo: So he went around, he bought everything that he
could get. He would buy it for, let's say, a dollar a pound,
whatever. A fortune at that time. And he had a warehouse in Havana
full of tobacco, I think, at one time he had over 4,000 bales or
something like that. The war came and there was no tobacco to be
found, so the only person to have tobacco was him. At that time he
sold that tobacco; he made a large amount of money and that helped him
to become independent.

CA: What was his name?

Carrillo: Ernesto Perez-Carrillo.

CA: Did he come to America at some point?

Carrillo: He would visit the U.S. while he was in the Cuban
senate, which he got elected to in 1954 and in '58.

CA: The senate in Cuba?

Carrillo: He represented Pinar del Río. In '59, he
had to leave Cuba because he was being pursued. And he was here for
about 10 years before he decided to start making cigars again.

CA: In 1959, he came to Miami, and what business did he go
into?

Carrillo: He had a bar. He had a restaurant. You know, all
kinds of different things.

CA: Was he allowed to take some money out of Cuba?

Carrillo: No.

CA: So he started with nothing when he came?

Carrillo: Nothing. Absolutely nothing. My father was the
type of person that money meant nothing to him. He didn't have that
much money in Cuba, and when he came over he didn't have any money. He
never thought of abandoning the island; the only reason he did it was
because he was arrested at different times [for being a member of the
liberal party].

CA: So he came in '59 and he later opened the cigar factory
El Credito. What year was that?

Carrillo: He created it in 1968.

CA: In '68 and he started making...

Carrillo: El Credito. He started making fumas and
cazadores, short filler cigars in the 44- to 46-ring gauge and
different lengths. His first real big customer was Hank Greenberg from
Suburban News, Chicago. And that's how he started making long,
Cuban-style cigars.

CA: Were they a distributor or retailer?

Carrillo: They had three or four stores in Chicago. In the
premium cigars, [my father] would make five or six different sizes and
sell it under El Rico Habano.

CA: When did La Gloria Cubana come into being?

Carrillo: La Gloria Cubana came about in 1972. But that was
mostly sold in the store or through mail orders. My father would come
home at night and go through the Yellow Pages. At that time they had
the addresses to send mailers and that type of thing. And my mother,
myself, my wife would send them out.

CA: How were you able to get the La Gloria Cubana name?

Carrillo: My father registered it. In Cuba, where we had
the El Credito cigar factory, the La Gloria Cubana factory was there
also. And at that time, he had bought the rights of the brands from
the people at La Gloria.

CA: What year was that?

Carrillo: I'm not exactly sure when, but I know when he
came here, he registered it and he had no problem.

CA: When did you enter your father's business?

Carrillo: I entered it in about 1968, '69. At that time, it
was just mostly a part-time job.

CA: What were you doing?

Carrillo: I was at school. When I was 19 I got
married. Then I started playing music; I wanted to become a
drummer. And I still worked with him part-time also. Now, as time went
by, I started getting more and more into the business, learning
whatever I could from it and from the people that worked there. In
1980, unfortunately, my father passed away. I took over the estate and
started going to the RTDA [Retail Tobacco Dealers of America] shows. I
started trying to build the business up.

CA: When you took over the business in 1980, how many
cigars was El Credito making?

Carrillo: That year we made 850,000.

CA: And what kind of cigars were they?

Carrillo: Well, they were the typical Miami cigar. They
were a blend of Dominican, Brazilian, some Honduran tobacco and
Ecuadorian wrappers. They were a milder cigar than the La Gloria is
now. For about five or six years after my father passed away, I went
through a lot of hard times because the demand wasn't really there. We
were working with very little capital.

CA: How did you earn your capital?

Carrillo: Actually, I was losing money. I remember my
accountant one year, I think it was in 1984 or 1985, told me, 'I think
this is going to be your last year in the cigar business because you
have lost $20,000.' I thought about it for a while and decided I
couldn't let all this effort go to waste, so I fired the bookkeeper. I
didn't want anybody tellingme that my business was in ruins. But, as
it turns out, we were losing the money...

CA: But 800,000 cigars was a lot of cigars in those days.

Carrillo: But that was in 1980. By 1985, we had fallen to
about 500,000 cigars.

CA: Was that the low point in terms of production?

Carrillo: Right.

CA: Because today, in Miami, you're only doing a million
two. Would you be doing 10 million today if you'd had the capital?

Carrillo: Yes. But at that time, they were different
times. There wasn't the demand that you have now.

CA: And you were selling them for nothing. Your prices were
ridiculous.

Carrillo: There was absolutely no markup. I think at that
time, the assumption was if you made $40, $50 on a thousand cigars,
you were doing great.

CA: My understanding is that you made cigars in the 1980s
basically for the Cuban and Spanish customer base in Miami.

Carrillo: Yes, that's true. We made a lot of short-filler,
Cuban-style cigars. They were 40-cent cigars.

CA: Forty-cent cigars! What percentage of your cigars in
those days were sold at that price?

Carrillo: It was about 70 percent. We sold in a lot of
small cafeterias to other people that resold them.

CA: When did you start to believe that you had a national
brand?

Carrillo: Quite frankly, I have to say it was pretty much
after the [Cigar Aficionado story].

CA: When the story came out.

Carrillo: Right. That's when it started really.

CA: You started getting phone calls from retailers? From
consumers? Who?

Carrillo: Everybody--everybody wanted the cigars. Before
that, we sold the cigars in just a few places, like in the East.

CA: The brand wasn't hot?

Carrillo: It wasn't hot. I remember the sales on the
torpedos. I mean, we'd sell them, but it's nothing like it is right
now. Right now they are one of the most popular sizes that we sell.

CA: And that started after your Wavell got a 90 in Cigar
Aficionado?

Carrillo: Completely. The day that the magazine article
came out, we were at the RTDA [convention]. To be frank, when I used
to go to those RTDA shows, if I sold 600 cigars, I'd be happy. I
remember the times we'd go to RTDA and come back with orders for 400,
500 cigars. When we got rated in that issue, we got orders in one day
for 26,000 cigars. In one day. Then, the phone calls into Miami were
tremendous.

CA: People used to tell me they would call you and no one
would pick up the phone.

Carrillo: It was impossible. We had to put in an answering
service. One time we got like 170 calls a day. Who could answer those
calls? It was incredible. And that's really when the brand became
known nationally and worldwide.

CA: And, you still don't have someone answer the phone?

Carrillo: I gotta get Americanized.

CA: Isn't it time, then, to have a staff, to have an
organization?

Carrillo: [laughs] Yeah, I think so. I think it is time to
get something like that.

CA: I gotta believe you're working day and night. And it's
impossible; it would seem to me that it would be impossible for one
man to do it all himself.

Carrillo: Right. It is impossible. And I do have a few
people that work with me, but I do need more help. To delegate more...

CA: You need an organization! Not just rollers; you need
salespeople, administrative people, a billing department...

Carrillo: That's right. It's time that I do have that
because it is getting out of control.

CA: And with the numbers you're talking about, I always
thought that the most serious flaw that you had was that you grossly
underpriced your product. Therefore, you didn't have the margins to
invest in a staff to manage a growth of the business. And I'm not sure
that in the past four years you have created the organization you need
in order to build your company; this is 1996, the beginning of 1997;
you're going from a million to 7 million. Doesn't it scare you?

Carrillo: It scares me to a point, but you know I haven't
really given that much thought to building an organization. And I have
to build one; like you said, I can't do it all by myself. Just
traveling back and forth takes up a lot of time. And you do need good
people to help you. I just hadn't been able to find the people that I
need in administration.

CA: Do you plan to expand at all in Miami or will all of
the expansion take place in the Dominican Republic?

Carrillo: The expansion at this time will take place in the
Dominican Republic. If I were to expand, of course, if I get
cigarmakers in Miami, I'll keep expanding. The situation there now is
that there are so many new cigar factories opening up that it becomes
very difficult.

CA: Let's be real about this. Do you in your heart feel
that you are able to maintain the high quality, when you have almost a
boutique operation in Miami, now that you are in a commercial-size
factory in the Dominican Republic? Is there any change in the quality
of the product in your opinion?

Carrillo: Well, you know, I'm not just going to say this
because I opened up in the Dominican Republic. The cigars are going to
sell. We've had a lot of success with the Dominican cigars. That's not
a problem. Because there's more space there, there's more labor. I
think we can improve the cigars in the Dominican a lot faster than at
the factory in Miami. For the simple reason that we have the space, we
have the manpower, and it's cost-effective.

CA: Is improving quality in the Dominican Republic a
function of buying better quality tobacco or training more proficient
rollers?

Carrillo: It's a whole process, a whole process that comes
from the time that you get the tobacco to the time that you make [the
cigars]. For instance, in the Dominican we have four supervisors
checking all the cigarmakers--how they're folding the leaves, how
they're rolling the leaves, all this type of thing. In Miami, we can't
find a person that we would call a supervisor to do this type of
thing. Because there's not really someone that's experienced enough in
what I want them to do. I think in the Dominican we'll be able to
improve a lot in the way the cigars are made. There's room for
improvement in the Dominican Republic; you're working with people who
want to work and need to work and are anxious to do a good thing and
make a good product, because their livelihood depends on the cigars
that they're making.

CA: Has the quality of the cigar in Miami suffered because
you're in the Dominican Republic 20 days a month?

Carrillo: No. Because, these people, Cuban cigarmakers,
first of all, they're very professional, they're very proud of what
they're doing.

CA: How do you handle quality control at the two locations?

Carrillo: In the Dominican Republic, we have four
supervisors; we have five more people that check the cigars after
they're made. In Miami, we have one person checking the cigars because
of the low volume.

CA: What about boxes? I hear there's always a shortage.

Carrillo: That's a big problem.

CA: Do you ever have the cigars ready but can't ship
because you don't have the boxes?

Carrillo: Right now, in the Dominican Republic, we must
have over a million cigars ready to be shipped, and we're not shipping
anything because we just don't have the boxes.

CA: Where do you get the boxes from?

Carrillo: We're looking into different places, a cigar box
company opening up in the Pisano free trade zone, called Mantis. There
are three other people that want to start up box companies this
year. Hopefully, we'll be able to get a lot more boxes. That's a big
problem right now in the industry.

CA: What about boxes in Miami?

Carrillo: First of all, they only make wood boxes at a very
high cost. They're expensive. What I want to do next year is change
all La Gloria Cubana, El Rico Habano and La Hoja Selecta to a colored
box. I found they're easier to make. I like them better; they're
prettier with the colors and stuff. And they're not as expensive as
the cedar boxes.I think there's going to be a problem with cedar down
the road. So much now is being used to make cigar boxes, there's going
to be a problem with shortages.

CA: Are there any problem areas other than the boxes at
this point? Is shipping a problem?

Carrillo: Cellophane is becoming a problem now because of
the demand. Cigar molds are also a problem. We have now about 20
people that should have started working with us about a month ago and
we're still waiting because we don't have enough molds or presses. The
thing in the Dominican Republic is that people are just going haywire
and they can't keep up with the demand for anything.

CA: When do you see the cigar boom slowing down to a more
normal growth rate than the staggering numbers that we're experiencing
today?

Carrillo: I think that the only thing that will slow it
down, and I think it is very important for the tobacco growers to be
aware of this, is the pricing factor. Unfortunately, we've come into a
situation that is unique. I think the only thing that will stop this
boom is the prices of cigars. I mean, really, people can't afford to
pay 10, 12, 15 dollars for a cigar.

CA: How much is your most expensive cigar?

Carrillo: Six dollars.

CA: What size it is?

Carrillo: It's the pyramid, a large torpedo.

CA: What is your largest size of La Gloria in terms of
volume?

Carrillo: The Wavell.

CA: What does that sell for today?

Carrillo: $80 a box retail.

CA: In the Dominican Republic, what is your largest selling
cigar size?

Carrillo: Everything we make in the Dominican Republic is
for the United States, so it would be the Churchill. We also sell a
lot of the Charlemagne and the torpedo. We have 10 people making
torpedos in the Dominican Republic.

CA: Do you make many maduro cigars?

Carrillo: No. We're going to start this in '97.

CA: In the Dominican Republic?

Carrillo: Right. In Miami, we'll [someday make] make
maduro; in the Dominican it's gonna be in 1997. Everybody knows maduro
wrapper is going to get very, very expensive. And hard to get.

CA: When you think about the cigar market and the future of
your company, what thoughts go through your mind?

Carrillo: I don't think it's a boom anymore, I think it's
an industry, an industry just on a growth surge. But it won't be if we
keep making the mistakes which are being made now, overcharging for
cigars and this type of stuff. I think all manufacturers are trying to
make the best quality cigar possible. And I think that this cigar
fever can last for a long time, if we just control what is
happening. We can't let it get out of hand and look short-term, or
this is going to die in five years or 10 years. But it will never die
unless the industry itself kills it.

CA: What is your attitude towards the explosion of new
cigar brands entering the market, hundreds of new brands that didn't
exist three years ago? What impact will they have on the market?

Carrillo: All of these brands are making it hard to get as
much tobacco as you want. I think as long as we're here for the
long-term, we won't have any problems. I can't see anybody coming in
for the short term just to make a profit. Cigar making is something
that you have to do because you love doing it, not because you make
money. And if you look at it in the short term, you're not going to
last. Competition is great because it keeps everybody on their
toes. The only problem is, of course, the lack of tobacco, lack of
workers, that type of thing. But I don't have any problem with new
brands. I mean, as long as they are in it for the long term and don't
want to mess around with me, I have no problem with any of the new
brands coming into the market.